EPAM Systems, Inc.

Good day, everyone. My name is Michael and I'll be your conference operator today. At this time, I would like to welcome you to EPAM's first quarter earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, and if you have joined via the webinar, please use the raise hand icon now, which can be found at the bottom of your webinar application. At this time, I would like to turn the call over to Mike Richandle, Head of Investor Relations.

Good morning, everyone, and thank you for joining us today on our first quarter 2026 earnings call. As the operator just mentioned, I'm Mike Reschandle, head of investor relations. We hope you've had an opportunity to review our earnings release we issued earlier today. If you have not, copies are available on epam.com in the investor section. With me on today's call are Balazs Fayesh, CEO and President, and Jason Peterson, Chief Financial Officer. I would like to remind those listening that some of the comments made on today's call may contain forward-looking statements. These statements are subject to risk and uncertainties as described in the company's earnings release and SEC filings. Additionally, all references to reported results that are non-GAAP measures have been reconciled to the comparable GAAP measures and are available in our quarterly earnings materials located in the investor section of our website. With that said, I will now turn the call over to FB.

Thank you, Mike, and good morning, everyone. It's a pleasure to be here with all of you. We delivered a solid first quarter with revenue growth at high end of our outlook range, year-over-year improvement in our adjusted profitability and gross margins, and strong adjusted earnings per share. Our pure AI revenues exceeded $125 million in Q1, up nearly 20% sequentially from Q4. This momentum gives us a strong line of sight to our 600 million target for the full year, even with the broader macro variability we have factored into our outlook. We also just announced a strategic multi-year applied AI partnership with Anthropic to accelerate the delivery of safe, reliable, enterprise-grade AI for our clients. As an Anthropic services partner, EPAM is building a dedicated practice for more than 10,000 cloud-certified architects, including a specialized cadre of 250 forward-deployed engineering blackbots. To date, over 20,000 ePammers have completed training via Entropic Academy, and more than 1,300 are already cloud certified. We expect to reach 5,000 certifications by end of Q3, with 10,000 by year-end. This is a further proof of our engineering expertise, our adaptability, advanced learning and education programs, and readiness for cloud within the enterprise. As we outlined at our recent investor day, we have a clear multi-year strategy to drive our next phases of profitable growth and further capitalize on the global AI transformation opportunities. Our aspiration is to become the go-to partner for enterprise AI transformation with a focus on three strategic pillars which are helping reshape the company. These pillars include establishing ourselves as a leading AI delivery software engineering services provider, transforming ourselves into an AI native organization and capitalizing on our AI native structure to expand go-to-market offerings. For 30 plus years of engineering DNA and heritage, expanding domain and vertical expertise, advanced IP and platforms, and deepening strategic partnerships continue to differentiate us and provide a durable advantage. Our mission is to win the build opportunity of our lifetime. The gap between the rapidly developing foundational AI capabilities and the ability of enterprises and societies to adopt AI safely, reliably, and with sustainable growing value will drive some of the largest technological investments humanity has ever made. This view was recently validated by our new partner, Entropic, and also by Nvidia's CEO, Jensen, during his interview with Dvorkes Patel. Today, we are moving beyond traditional IT services with a sharp focus on AI-native engineering and AI-native business transformation, which both continue to gain traction. At the same time, EPAM is fundamentally rethinking how the company operates, which goes beyond scaling adoption across 60,000 people. With our client zero mentality, we are engineering an entirely new operating model, one that dynamically blends human talent, AI capabilities, and advanced agentic systems to run the business faster, better, and at a lower cost across all geographies. early stage of this new blend is reflected in the number and the shape of AI native projects that we are starting with clients. AI Run went from being an SDLC transformation paybook to powering a series of AI Run transform motions that bring significant structure and value to our clients' own AI adoption approaches. ROI-driven Playbook uniquely brings together our engineering excellence with AI native delivery, coupled with strategic consulting and advisory teams, deep technical expertise, and partner ecosystem technologies. Unlike traditional consulting roadmaps and deployments, EPAM's AI-run transform integrates blueprints, talent, and tools into a single, proven, repeatable, and scalable transformation platform for our clients. We continue to create global go-to-market playbooks using proven methods across the globe. As a larger number of our AI programs are scaled into deployments, tokenomics, and implication for our engagement is becoming more significant. This is a generally new and consequential commercial construct and presents both challenges and opportunities for us and services components in general. As the industry works through the models, we intend to be ahead of the curve as we continue to evolve our approach to AI investment, pricing, client engagement, and delivery models for some quarters to come. One additional element of our strategy worth highlighting is the fact that we are now accelerating our deliberate go-to-market investments in our largest market in North America. These investments are modeled on what has proven to be successful in EMEA, evidenced by their industry-leading growth rate in Q1. Now let's turn to some quick Q1 highlights. In Q1, revenues grew 7.6% year over year with constant organic currency revenue growth of 3.7%. Five of our six verticals grew year over year, led by financial services and software and high tech, followed by consumer goods, retail and travel, emerging verticals and life sciences and healthcare. Across geographies, growth was led by email, delivered strong double-digit year-over-year growth. We are continually balancing our delivery locations and skill mix, adding new certification, domain specialization, and additional roles across our global pyramid. We also continue to proactively manage our commercial engagement types, driving new fixed price and other service deals while proactively managing localized branches. Now, turning to the demand environment. Overall, client sentiment remains stable through the end of Q1 with continued shift in spend towards AI native and strategic deployments. Clients continue to turn to EPAM for help in addressing the widening AI adoption gap. The need to modernize and build out AI foundation readiness remains critically important. Technical depth continues to mount, and the latest AI capabilities are making the backlog of required work evident, further underscoring our confidence that the build opportunity is a long-term one. As we look ahead, there's a more macro uncertainty today compared to 90 days ago. And our outlook reflects the broader variability we are seeing in the client decision making. We are particularly seeing underperformance in North America, and this is contributing to lower visibility in the second half. At the same time, our underlining momentum, particularly across our AI-native business, continues to build. However, macro volatility has introduced some additional caution in client decision-making, particularly on certain larger discretionary programs. While Q1 was not impacted, we are expecting some impact in Q2. Importantly, our client pipeline of AI programs and fundings remain strong. What we see is a temporary shift in timing and direction as clients respond with caution and pre-prioritize the short-term actions against the bigger transformation opportunity. Now, turning to AI. As we have all seen in the news, AI capabilities continue to advance extremely fast. The pace of technological change and digestion is unprecedented for enterprises as they face the challenge of balancing cost optimization and productivity with real business outcomes at scale. Further token usage and the associated economics are all becoming a more integral part of the investment thesis and business case. All this just increases complexity, which, as we stated at our investor day, unleashes new sets of requirements across all eight dimensions of the enterprise. EPAM remains in the sweet spot of helping enterprises close the AI adoption gap, solve their most complex challenges, and deliver quality AI-native enterprise-grade solutions at scale. We are working hard to further build and create high velocity performance teams within our AI native delivery engine to take advantage of larger growth opportunities. By design, our teams will bridge strategy to execution with a more consultative approach, all with deep domain and verticalization expertise. Looking across our top 100 clients, traction remains strong as more than 80% of our engaged in AI initiatives or AI run frameworks and tools continue to support hundreds of active AI native projects. Notably, we had more than 100 new AI native project launched in Q1 illustrating our active pipeline and help the replenishment of new opportunities. In terms of new deals, just since we shared our update at our AI Day, EPM is seeing an accelerating large deal pipeline focused on AI-enabled vendor consolidations, where EPM has significant opportunity to gain market share. These multi-year deals are larger than our historical norm, are expected to scale over time, and include a range of commercial models. The trajectory of this pipeline marks a meaningful step in EPAM's evolution as a strategic partner to enterprise clients. However, the full potential of these deals is not yet reflected in our outlook. Across our pure AI native revenues, our momentum continues and fundamentals remain intact with another quarter of double-digit sequential growth. Demand across our AI foundational services remains solid with faster growth in both our data and cloud practices as compared to the rest of the business. Importantly, we believe we can further accelerate capturing AI foundational demand with the deployment of more domain capabilities and forward deployed engineers to client engagements. This motion will take some time to scale, but we see this as a critical unlock to being able to deliver true business transformation to clients. Beyond transforming EPAM's business and go-to-market approach toward more outcome-based models, We are building not just an engineering mode, but a domain and context-based mode, anchored in playbooks built on successful engagements over time. Capturing the expertise at the source of these engagements further develops our playbooks into differentiated IP and ways of working. Here are some client examples to illustrate the shift. One, PDLC transformation for Nelnet, a global company specializing in consumer finance, student loan servicing, telecommunications, and education to explore the potential of GenAI tools to boost PDLC efficiency. To do that, EPAM developed a program to identify baselines and performance productivity benchmarks based on EPAM's AI-run transform. Nelnet achieved a 31% productivity increase, accelerated backend development by nearly two times, and empowered its teams to scale AI-driven innovation across the organization. We continue working with Nelnet to expand the PDLC program across the organization and continue building an enterprise governance model that scales. Two, modernize and upgrade global streaming infrastructure for a leading streaming platform client within the media entertainments serving 10 plus million concurrent users across 50 plus countries. With our partner EWS, we successfully transformed a fragile single region platform into a self-healing global system sustaining 99.99% uptime, without manual intervention. The solution deployed active-active EKS across more than six regions with automated IAC governance and standardized site reliability engineering practices. Together, we helped our client achieve 70% less configuration drift and zero downtime deployments. Three, bring the right AI and Gen AI programs from use case concepts to full-scale production deployment for a large global insurance company. Here, our Dial platform serves as both a domain playbook and a significant accelerator, integrating both upstream and downstream systems to ensure seamless end-to-end automation to assist the reinsurance clean department in first order of loss processing. EPAM automated billing reconciliation and streamlined reinsurance treaty analysis, proving the real world potential of AI in a highly regulated industry. After implementation, time to process first order of loss events decreased by 75%. Our efforts continue to be recognized, validating our strategy and the quality of our execution. So far in 2026, we have been honored to receive several key leadership distinctions. We earned two 2026 Google Cloud Partner of the Year awards for helping clients achieve measurable business outcomes through advanced AI and cloud technologies. The Sustainability Award highlighted our use of AI and geospatial technology to address environmental challenges, while Databases Award celebrated our scalable methodologies for enterprise cloud migrations, including our work with Deutsche Bank. EPAM was included in the Forrester Customer Experience Strategy Consulting Services landscape featuring providers that supports end-to-end CX transformation from visions through execution. EPAM named a leader in the IDC marketscape worldwide data modernization services provider for retail and restaurants. And finally, EPAM was ranked among the top three companies in Glassdoor's inaugural Best Companies in Tech and AI 2026 list, recognized for its culture of belonging, innovation, and leadership. These recognitions continue to reflect the hard work and dedication of our global teams and unwavering commitment to delivering tangible high-value outcomes for our clients. In summary, we are pleased with our first quarter results, which delivered the high end of our revenue outlook despite more uncertain macro environments, a solid foundation we intend to build upon throughout the year. we remain confident in our long-term strategy and vision in transforming ourselves into a global leader in AI transformation services, working to further capitalize on faster growing parts of the total IT and AI services market. Our underlining AI native and AI foundational readiness momentum remains strong and continues to resonate with our existing client portfolio, while we transform our go-to-market motions over the coming quarters to further expand our new client portfolio. While the macronomic environment has impacted visibility and added some variability, we feel good about our pipeline, including the larger strategic opportunities I described earlier, which represent a meaningful step in our evolution. Lastly, I want to thank you all for your continued commitment, trust, and support. Jason, over to you.